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Market Strategy 4/19/2021

  • John Stoltzfus
  • April 19, 2021

The More Things Change the More Some Things Stay the Same

A softening in US Treasury yields and a renewed interest in growth stocks suggests an improving economy with reflation rather than untoward levels of inflation ahead
Key Takeaways
  • Q1 earnings thus far exceed expectations with several major banks posting record profits as the US economy, deal-making, and trading proved better than expected.
  • A number of widely-followed equity indices around the world hit record highs last week as Treasury yields moderated. This week look for a broad array of corporate earnings results as some 80 more firms including several large technology companies report results.
  • Economic data for the US reported last week in retail sales, consumer confidence and housing starts exceeded expectations with inflation reflecting increased economic activity from the levels of last year
abstract digital

With stocks at or near record highs stateside progress in stemming the spread of the COVID-19 pandemic and its variants, economic data and revenue and earnings growth along with monetary policy and fiscal stimulus will likely persist as the mixed bag that garners investors’ attention.

Both the Dow Jones Industrial average and the S&P 500 closed last Friday at new record highs with the NASDAQ Composite (over 40% weighted in technology and tech related names) closing just 0.31% shy of its record high reached earlier this year on February 12th.

Growth began to catch a glance from investors as early as mid-March of this year after value had seemed to some to have stolen investors’ hearts away from growth stocks beginning last September.

In our view the recent resurgence in the appeal of growth stocks is not surprising but rather points to our long held view that investors’ (both institutions and private clients) appetite for stocks has broadened with a desire for diversification as well as a need for income (i.e. dividend) producing holdings with interest rates likely to rise just modestly in a world in which secular trends driven by technology and globalization remain counter inflationary.

Quotation from Aenean Pretium

With equities a perennial discount mechanism it’s no wonder that market capitalizations and style categories in equities will experience rotation, rebalancing and fluctuations as the world moves from pandemic oppression to economic recovery and likely towards a period of sustainable expansion…

A recent fade of outperformance by mid- and small cap stocks belies their significant outperformance of the large cap stocks since the start of the year. On a year to date basis the S&P 400 (mid-caps) the S&P 600 (recognized by many investors as a quality small cap index) and the Russell 2000 (a broader gauge of small cap quality) are respectively up 17.97%, 20.47% and 14.57%. In comparison the large cap indices: the Dow Jones Industrials, the S&P 500 and the NASDAQ Composite are respectively up 11.74%, 11.43% and 9.03%.

With equities a perennial discount mechanism it’s no wonder that market capitalizations and style categories in equities will experience rotation, rebalancing and fluctuations as the world moves from pandemic oppression to economic recovery and likely towards a period of sustainable expansion.

It’s important to note that MSCI’s EAFE Index (the developed equity markets excluding the-US and Canada) priced in US dollars closed last Friday at 2,299.28 its highest level in 2021 and its highest level this cycle (its record high in the last cycle was 2,300.38 on September 28, 2007 just prior to the global financial crisis). This year’s record high for EAFE suggests to us that global appetite has significantly improved for this asset class even as segments of the developed economies of the world remain under pressure from the pandemic. The move into these markets suggests that recent efforts by monetary policy officials and fiscal policy authorities in the developed world ex-US and Canada have garnered positive attention from investors after a long period of relative disinterest.

The MSCI emerging markets index as of Friday stood at 1,348.69 or 7.14% off its record high of 1,444.93 reached on February 17 of this year. A rally in the dollar from mid–February took some luster off emerging markets as a basket of EM currencies fell a little more than 4.5% against the dollar. Since early March the same currency basket has regained about half of what it lost against the dollar reflecting improved economics in the emerging markets and in the US.

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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